United States Food and Drink Report Q2 2008

In a sign of the ongoing economic advancements in Latin America, several food and drink firms from this region are starting to make acquisitions in the US as discussed in BMI's newly published Q208 US Food & Drink Report. With the US dollar currently very weak compared to several Latin American currencies, including the Brazilian Real, the country's assets are looking increasingly affordable to firms from this region. So far the rate of investment has been fairly slow, however with the US representing a massive market with significant buying power, BMI expects that this trickle of takeovers may eventually turn into a flood. However, with some of the country's politicians expressing concern about this increase in foreign takeovers, especially in the sensitive area of agriculture, further large scale acquisitions may start to come under greater scrutiny.

Some of the largest deals so far involve Brazilian beef processor JBS, which began its conquest of the US in May 2007 with the acquisition beef and pork processor Swift. The firm now looks set to go on to become the US's largest beef processor through the acquisitions of National Beef for US$565mn and the beef operations of US meat group Smithfield Foods for US$560mn. These moves, if approved by the country's antitrust authorities, will give the firm control of around 32% of the US market, dwarfing the current largest operators Cargill Meat Solutions and Tyson Foods, which both control around 22% of the market. Surprisingly, despite the food production being a politically sensitive issue, these moves have not attracted too much criticism from the country's protectionist politicians. However this is likely to be because the US beef processing industry is currently experiencing significant problems, with excess processing capacity and slowing sales due to the economic downturn, and any form of investment is therefore greeted positively.

A second firm looking to target high spending US consumers is Colombia's third largest dairy firm Alpina. In December 2007 the firm announced plans to make its first foray into the US market with the purchase of a yoghurt company on the US east coast. Alpina outlined that it plans to target the east coast area's large Hispanic community, which is familiar with its products and has a high purchasing power compared to much of Colombia's population. The growing US Latino population is another key reason why Latin American firms may soon start taking a much greater interest in expanding into the US. So far most of Latin America's largest food firms, such as Colombia's Grupo Nacional de Chocolates and Venezuela's Empresas Polar have steered clear of the US, preferring to concentrate on expanding in neighbouring countries in Latin America. However, if JBS goes on to prove that a Latin American food firm can successfully take on the US players in their own back yard, Latin American acquisitions of US food and drink firms may start becoming a much more regular occurrence.